Image source: Visual China
The two giants of the domestic game industry, Tencent and NetEase, both adopted similar strategies and rhythms last year to attack cities in overseas markets. However, judging from the performance in the first quarter of this year, the two companies have begun to show different development trends in the overseas game market.
A few days ago, Tencent and NetEase successively released their financial results for the first quarter of 2023, and also launched their annual games during the same period. In the financial report, Tencent once again focused on the overseas game business, disclosed the relevant progress in more detail, and believed that it has become the second growth curve of Tencent games. NetEase, on the other hand, has a relatively low-key performance on the overseas game business and does not disclose too much information.
NetEase overseas games are still in their early days
NetEase's first quarter 2023 performance report released on May 25 showed that the company's net income was 25 billion yuan, an increase of 6.3% year-on-year. Among them, the net revenue of games and related value-added services was 20.1 billion yuan, an increase of 7.6% year-on-year.
NetEase CEO Ding Lei said in the financial report that the bright performance of game products has brought a good start to 2023.
Regarding the progress of overseas games, there is only one sentence mentioned in the earnings report that NetEase's self-developed RPG game "Harry Potter Magical Awakening" will be launched in overseas markets this summer.
The game is produced by NetEase's Zen division in collaboration with Portkey Games, Warner Bros. Games and EnvoyGames, and has previously been trialled in markets such as Austria, Denmark, Finland and Israel.
Although overseas markets have been increasingly valued, unlike Tencent, NetEase does not disclose the specific financial status of overseas games in its financial reports.
In the conference call after the earnings report, Ding Lei said that NetEase currently has more than 10 studios overseas, and is very confident that next year and the year after, there will be works launched by overseas studios, which can serve both overseas markets and the Chinese market. NetEase can work with these working teams to share creative experience and achieve a win-win situation.
At the earnings conference, NetEase executives revealed that "Egg Party" developed based on NetEase's self-developed engine will target overseas markets and accelerate the pace of going overseas. "Egg Party" has been trial-operated in Southeast Asia and other places to collect feedback from local players, and the next step will continue to strengthen the UGC gameplay experience of "Egg Party".
This quarter, NetEase gained two more game studios in the global market. One is Anchor Point Studios, led by Paul Enreth, which will focus primarily on developing action-adventure games. The other is Bad Brain Game Studios, led by Sean Crooks, which is currently working on a new story-driven action-adventure game that will be produced in Unreal Engine 5 as an open-world game.
In addition, Titanium Media APP observed that on May 20, at the NetEase Game 520 online conference, its Sakura Studio, which focuses on console game development, made its debut. However, NetEase has only introduced it a little briefly.
As stated at the fourth quarter 2022 results meeting, NetEase CFO Yang Zhaowen said, NetEase's overseas game studios are still in the investment stage, and the games they develop may not enter the market until 2025.
Speaking of his views on overseas markets, Ding Lei once said that the status of overseas games and Chinese games is different. Gamers in Europe and the United States attach great importance to PC games and console games, and their views on mobile games are more inclined to casual; Japanese and Korean gamers believe that mobile games, console games, and PC games are all acceptable; Many gamers in China prefer mobile games.
Sakura Studio, which debuted at the NetEase Game Conference, is positioned as a console game. This is also the first time that NetEase has released a separate PV video only around a console game.
NetEase Games Sakura Studio debuted on May 20 this year
Titanium Media APP learned that Sakura Studio was established in June 2020 and has locations in Guangzhou, China, and Shibuya, Japan. Its core members mainly include former Capcom game designer Ryosuke Yoshida, former Bandai Namco department manager Tetsuya Akatsuka, and art director Gez Fry, who has worked for Microsoft, Capcom and other companies. At present, Sakura Studio is developing 3 products, including action RPGs, a new action game with a large number of avid fan series, and an original self-developed IP cooperative action game. The game uses a UE engine with an emphasis on game experience design.
Although NetEase has bet on overseas games on PC and console games, especially console games, at present, NetEase Games' strength is mobile games, and it is this category that contributes the most to its performance. NetEase's first-quarter financial report shows that net revenue from online games accounted for 92.7% of the revenue of value-added services of games and related businesses, while net revenue from mobile games accounted for 72.3% of online game revenue. This may also be the reason why NetEase is still in a groping stage in the overseas game market.
Tencent Games' international market revenue is strong and has become the second growth curve
Unlike NetEase Games, which are still in the early stages overseas, Tencent Games' revenue in overseas markets is gradually increasing.
According to Tencent Group's financial report for the first quarter of 2023, Tencent Games' international market game revenue in the first quarter was 13.2 billion yuan, a year-on-year increase of 25%, and an increase of 18% after excluding the impact of exchange rate fluctuations. This was driven by the strong performance of the recently released Lady Victory: Nikki and Triple Match 3D, as well as the steady growth of VALORANT. However, revenue in the sector fell 5% month-on-month, which the earnings report attributed to the off-season impact after the December holiday.
In terms of games in the international market, Tencent highlighted the progress of three games: "VALORANT", "PUBG Mobile" and "Triple Match 3D".
Among them, "VALORANT" Japanese style and alien-themed weapon props were very popular, driving a 30% increase in game turnover in the first quarter compared to the same period last year, while "Triple Match 3D" achieved a breakthrough success in the elimination category, becoming the only game on the market that was released in the past two years and ranked in the top 10 games of its kind.
Developed by Riot Games, VALORANT was first released in October 2019.
Since Tencent first disclosed data from this sector in the third quarter of 2019, the contribution of game revenue in the international market has continued to increase. Tencent believes that Tencent has established a full-chain layout from R&D to distribution in the overseas game market, and has gradually achieved results. At the same time, Tencent Games' overseas business teams are currently located all over the world. In addition to participating in overseas game distribution, they are also promoting Tencent's self-developed games to the global market.
At present, Tencent's overseas game revenue has reached 38% of local game revenue, becoming the "second growth curve" of Tencent games.
Unlike NetEase Overseas Studio, which focuses on the research and development of new games, Titanium Media APP observed that in the first quarter of this year, Tencent's strong performance in overseas game performance was mainly due to the promotion of "classic games".
James Michelle, Tencent's chief strategy officer, said at the results meeting that he prefers to call these games "evergreen games."
Tencent's gaming portfolio, many of its most successful and large-scale games, falls under the competitive gaming category. These competitive games tend to be team-based, fair, balanced, and can be played for years or decades. The above characteristics are already an indisputable fact, and the situation is similar to other team competitive games in the industry.
Regarding the current development of games in overseas markets, Michelle believes that from the perspective of the global market, the game industry has overcome some transitional challenges, including the impact of the post-epidemic era in Western countries and the shortage of game version numbers in China. The global gaming industry is likely to recover at above-single-digit growth rates.
Of course, the domestic companies that have coveted the overseas game market for a long time are not just Tencent. Previously, Titanium Media APP observed that Chinese game companies, including Netease, Mihayou, Lilith, etc., have accelerated the pace of going overseas, and are mainly in the form of large-scale mergers and acquisitions and restructuring of overseas game studios. This will naturally put some competitive pressure on Tencent.
For competition in overseas markets, Michelle believes that Tencent's competitive landscape in the acquisition of overseas game companies has been relatively stable in the past few years. While many companies are making acquisitions, often their goals do not overlap with those of Tencent. In other words, some of them may be console game companies, most of them are acquiring brick-and-mortar game studios, and some companies may be looking to earn additional revenue through acquisitions and mergers.
The situation of Tencent is different. Tencent's games are not tied to any single hardware device. Tencent has acquired a wide variety of studios, including mobile game studios, PC game studios, and console game studios. In addition, when making investments and acquisitions, Tencent will often take a longer-term view, considering the development prospects for the next three, five or even seven years.
For the most part, Tencent prefers to work with niche game studios that have just released successful games because of their precedents, but due to their smaller size, the studio's revenue may decline in the coming years.
Therefore, to some extent, Tencent's cooperation with some studios happens naturally, and other studios are "different from each other". In general, Tencent's acquisition pattern of overseas game business has not changed dramatically, and if there are more changes in the future, Tencent will definitely take more proactive and proactive measures.
(This article was first published in Titanium Media APP, author|Li Chengcheng)